Communication NBB_2016_36 / Application Dossier for the Use of Internal Models

NBB_2016_36 – 19 July 2016 Communication – Page 1/4 14 Berlaimont Boulevard – BE-1000 Brussels tel. +32 2 221 38 12 – fax +32 2 221 31 04 company number: 0203.201.340 RPM Brussels www.bnb.be

Communication
Brussels, 19 July 2016
Reference: NBB_2016_36 your contact:
Dieter Hendrickx / Jérôme Bourtembourg tel. +32 2 221 34 29 / 33 93 – fax +32 2 221 31 04 dieter.hendrickx@nbb.be / jerome.bourtembourg@nbb.be

Communication concerning the application dossier for the use of internal models

Scope
Belgian insurance or reinsurance undertakings.
Insurance or reinsurance undertakings that are part of a Belgian group within the meaning of Article 339, 2° of the Law of 13 March 2016 on the status and supervision of insurance or reinsurance undertakings.
Belgian undertakings that are part of a Belgian financial conglomerate within the meaning of Article 340, 1° of the aforementioned Law of 13 March 2016.
Branches of undertakings from third countries carrying on insurance [or reinsurance] activities in Belgium.
This communication applies to mutual insurance companies defined in Article 15, 79° of the aforementioned Law of 13 March 2016. For these undertakings, "the Bank" should be replaced by "the Office for the Supervision of Mutualities and National Unions of Mutualities" as defined in Article 15, 84° of the same Law. This communication does not apply to insurance undertakings referred to in Articles 275, 276 or 294 of the aforementioned Law of 13 March 2016.

Summary/Objectives
This communication aims to inform insurance and reinsurance undertakings of the content of the application dossier for the use of an internal model.

Legal References
The Law: the Law of 13 March 2016 on the status and supervision of insurance or reinsurance undertakings.
Regulation 2015/35: Delegated Regulation (EU) 2015/35 of the Commission of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II). Circular NBB_2016_27: circular concerning guidelines on the use of internal models within the framework of Solvency II.

Communication – Page 2/4 NBB_2016_36 – 19 July 2016

Implementing Regulation 2015/460: Commission Implementing Regulation (EU) 2015/460 of 19 March 2015 laying down implementing technical standards with regard to the procedure for the approval of an internal model, in accordance with Directive 2009/138/EC of the European Parliament and of the Council. Communication NBB_2016_35: Communication concerning the 'pre-application' procedure for the use of internal models

Structure
I. General Description
II. Application Dossier
III. Requirements, Procedure and Deadlines

Madam,
Sir,

Pursuant to Article 167, paragraph 1 of the Law, insurance or reinsurance undertakings may calculate their Solvency Capital Requirement (SCR) using an internal model, either full or partial, approved by the Bank. That is to say, they must submit an application for approval to the Bank. By means of this communication, the Bank wishes to inform insurance and reinsurance undertakings of the procedures for submitting this application for approval.

I. General Description
The application procedure is a formal process provided for cases covered by Article 167 of the Law, and in particular cases where, a) the undertaking wishes to calculate its SCR using an internal model for the first time (1st application) or, b) the undertaking calculating its SCR using an internal model wishes to apply for major modifications to its internal model in accordance with the provisions of Article 169 of the Law (major model change) or, c) the undertaking calculating its SCR using an internal model wishes to introduce new elements into the internal model, such as additional risks or operational units not yet included in the scope of the internal model, as mentioned in Recital 3 of Implementing Regulation 2015/460.

In accordance with Guideline 1 of Circular NBB_2016_27, in order to assess the progress of an insurance or reinsurance undertaking in preparing for an application for the use of an internal model for the calculation of the SCR in accordance with the Law and its ability to meet the internal model requirements set out in the Law, undertakings are strongly encouraged to participate in a 'pre-application' procedure, the details of which are presented in Communication NBB_2016_35.

II. Application Dossier
The Bank has established the procedure to be followed by insurance and reinsurance undertakings wishing to participate in the application process. In accordance with the EIOPA Opinion on the use of a Common Application Package for Internal Models of 27 March 2014, the Bank uses the common application package as designed by EIOPA. Undertakings wishing to submit an application for approval for the use of an internal model for the calculation of their SCR under Article 167 of the Law are required to send the Bank the duly completed dossier.

NBB_2016_36 – 19 July 2016 Communication – Page 3/4

This dossier consists of:
1) a self-assessment form, by which the undertaking informs the Bank of the conformity of its dossier with the requirements relating to the use of an internal model and the extent to which it is able to demonstrate this conformity based on written documentation;
2) a documentation file, containing all the items and documents allowing to demonstrate the level of conformity with the aforementioned requirements.
The common application package as well as the information note relating to it are available on the Bank's website and are included in the annex to this communication.
In the event of a major change, the insurance undertaking may submit a reduced dossier, which focuses on the documents concerned by the changes as indicated in Article 7 of Implementing Regulation 2015/460. The same applies to the introduction of new elements into the internal model as mentioned in Guideline 6 of Circular NBB_2016_27.

In the event that the application for approval for the use of an internal model for the calculation of the group SCR and possibly the SCR of part or all of the solo entities of this group is submitted under Articles 372 to 375 of the Law, the dossier must be transmitted exclusively to the group supervisory authority (group supervisor). In this case, the final decision will be based on the opinions of the supervisors concerned within the supervisory college.

III. Requirements, Procedure and Deadlines
The application for approval must contain at minimum the documentation proving that the internal model meets the requirements set out in Articles 174 to 187 of the Law as mentioned in Article 167, paragraph 3 of the Law. Furthermore, the application for approval must comply with the requirements of Implementing Regulation 2015/460 and the guidelines set out in Circular NBB_2016_27.

In the case of an application for approval for a major change to the internal model, the documentation provided in accordance with Article 2 of Implementing Regulation 2015/460 must also include the following:

• the objective and justification for the change,
• the reason for the classification as a major change,
• the impacted entities of a group,
• a precise impact study of the changes (at the same date). The quantitative impact must be provided for all relevant aggregation levels, as well as for all affected indicators (SCR; Best estimate; Risk margin; Basic Own Funds); and this for all impacted entities as well as for the group,
• the independent validation report regarding the change in question.
  The procedure and deadlines relating to an application for approval for the use of an internal model must be carried out in accordance with Implementing Regulation 2015/460.

Communication – Page 4/4 NBB_2016_36 – 19 July 2016

Prior consultation with the relevant supervisory authority on the deadlines and procedure for the work is highly recommended. It is recommended that the undertaking submit a schedule of future application dossiers (including 'pre-application') envisaged, and more specifically, it is recommended that dossiers planned for a given year be announced by 31 October of the preceding year. A copy of this communication is sent to the commissioner(s), approved auditor(s) of your undertaking. We ask you to accept, Madam, Sir, the expression of our distinguished sentiments.

Jan Smets
Governor

Annexes: 2 (available on the bank's website)